Under Pricing Your Home As A Marketing Strategy

Today in our local Uxbridge real estate market we are seeing more homes selling above the asking price as Realtors® recommend a tight to or barely under market pricing strategy.

While many buyers feel it is an unfair practice there are those who understand the principle of getting the most money possible in the shortest time possible and with the fewest inconveniences possible that lies behind the sellers decision to adopt this strategy.

Under Pricing Homes Is Not A New Strategy

Under pricing a home as a marketing strategy to elicit multiple offers has been around for almost two decades, even in a down market.

"multiple offers are still here, due in part to a practice that first surfaced in the late 1990s" from the article Sellers underprice, hoping to get way over price / Strategy pits bargain-hungry bidders against each other by Kelly Zito, Chronical Staff Writer July 14th 2002

Recently there has been an increase in the number of homes being sold for over the asking price both here in Uxbridge and across the Greater Toronto Area.

In our hot real estate market Realtors® pricing a home at or near recent comparable sales might appear to be using under pricing as a marketing strategy to help get the highest possible price in the shortest possible time with the least amount of inconvenience for the seller. In reality it is the demand that is causing buyers to pay more.

While this strategy can work it does not always work in all areas or all markets. Understand the risks involved if you are contemplating employing this as part of the marketing strategy for your home.

Despite this article's claim that "there is no downside to under pricing your home" there is always the possibility that you will not get any offers over the asking price.

Pricing Your Home Is An Art

From Los Angeles, California to Uxbridge, Ontario pricing your home is an art. There is a fine line between pricing it to sell and pricing it to sit for weeks perhaps even months without an offer or perhaps only lowball offers. In the right market pricing it under market value may actually be the best route to go as it can generate multiple offers and sell for more than it might have had you listed it at or slightly above market.

As Jane Peters so eloquently states ..... "If you hit the sweet spot on pricing you are going to induce multiple offers, and you will end up getting over asking and maybe more than you anticipated. When you are selling your home you want to feel that you are letting it go for its worth, not what you feel it is worth but what it is actually worth. And who ultimately determines that worth, the buyer."

Realtors® Don't Set The List Price For Homes.

Your Realtor® will provide information on comparable properties and other pertinent information including marketing strategies to help you determine the asking price for your home but ultimately it is up to you the seller to set the asking price.

Who Controls The Listing / Selling Price

The actual listing price is set by the seller not the Realtor®. While the Realtor® advises the seller and recommends a listing price the ultimate pricing decision is in the hands of the seller.

Factors that affect the value of a home are presented to a home buyer to help determine their potential offer price.

The actual sale price is determined by the buyer and the seller with the help of their respective Realtors® who negotiate on their behalf.

Real Estate Is Local

Remember real estate is local and comparing your home to another several miles away under most circumstances is like comparing the price of apples to oranges. When putting your home on the market you need to look at the comparable homes that are for sale or have recently sold in your immediate neighbourhood., It also pays to look at homes that did not sell and try and determine why they did not sell so that you do not fall into the same trap. The key is finding a real estate agent you can trust who knows how to price a home for sale without leaving money on the table!

When To Use Under Pricing As A Marketing Strategy

One of the best times to use under pricing as part of your marketing strategy is when demand is high and inventory is low.

Now Is The Time

"A bidding war is a sign that the home is probably underpriced—and the truth is that many new listings are just that, on purpose." From the article Forget Lowballing: Bidding Wars Return in Hot Housing Markets By Brad Tuttle April 30, 2013 time.com

While the article was written in 2013 we are currently experiencing lower than normal inventory here in Uxbridge, with the number of actual sales suggesting that our buyer pool is about the same for this time of year creating ideal conditions for utilizing a near market or underpricing strategy.

"With the right price in the right market, you could get multiple offers in a very short amount of time. This is especially true when there are a limited number of homes available to purchase. Inventory levels will often dictate how quickly a home receives an offer". from the articleTop 6 Myths About Pricing a Home For Sale by Bill Gassett

Buyer Beware

Here is an example of what can happen when a seller listens to the advice of his agent and prices their property aggressively to generate multiple offers and the buyer works with an agent who does not understand the effect of under pricing the listing.

"Recently, when we were hired to sell a home ...... we advised the seller to price the home to encourage multiple buyers to compete for the home." from the article Happy Homebuyer Does Not Realize His Real Estate Agent Just Lost Him$15,000 by Joe Manausa, April 18th, 2016

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I've seen this listing strategy in my area. The trouble with it is two-fold IMHO. First, buyers who are not used to it will assume if they pay full price on the list they will be in the running. Second, this artificial inflation in a short supply market will push offers up, and yes, the properties will sell for more than list. What this does is blow up the bubble. The home which sold for $50K above, will probably not appreciate to that value in re-sale in the next 3-5 years. What if the owners want/ need to sell and the market in 3-5 years is soft. They're stuck with a home they over-paid for.

Kathy, although it may work for some sellers I am all about transparency & do not like pricing below...I recommend pricing to market depending upon the time frames the seller has. It is so interesting how we all think !

I think some sellers are recluctant to go this way for fear they will only get one offer, at the low price, and have to go with it. In this up market I advise pricing at market and then it can up from there.

Kathy thank you for writing about underpricing and congratulation on being featured. I'm your proud neighbor from Toronto/York Region. I agree with points that you make, and as you probably know here in the Greater Toronto Area we've been experiencing a boom of underpriced listing with a set offer dates. I believe it's around 80% of all listings right now. And I acknowledge this strategy as being beneficial to the sellers and their representatives.

Just last week, my clients and I submitted an offer at the set offer date for a property that gathered in total 19 (NINETEEN!!!) offers. At the end, it was sold for $100K above asking with absolutely no conditions and short closing period. The listing was underpriced and all representatives knew it, but most of our clients decided to get it exactly because of the very attractive price. Prior to this one the absolutely similar houses were selling for at least $52K less for what had been thought the real and justifiable market value. And when I say absolutely similar, they actually are in all respects similar. Those houses were built in 1979 and most of them have outdated wiring and very small backyards surrounded by neighbors from all sides. Can you imagine consequences of removing a home inspection after barely viewing it with other eager buyers? I extensively work in that community and know it very well.

The problem is that this new price range makes the whole community unfordable for the 1st time buyers and young families with kids who were historically attracted to that community due to the affordable prices, good schools and proximity to Toronto. However, this is not a community that attracts other type of buyers. I’m very curious to see what will happen next!

I do not agree that a home is underpriced if it gets multiple offers over asking price. This is happening quite often in the KC metro area. Buyers go way over asking price due to lack of inventory ...plus they get so caught up in the process and obsess over getting a house. If they pay way over asking price and they want to sell in a few years...where is their equity?

Hi Kathy... I've used this strategy judiciously over the years and it works like a charm to get traffic, interest, and as often as not a higher selling price in the end than the seller would have gotten by pricing at market value.

Here in San Diego County, Kathy Clulow , many sellers do under-price but use range pricing to indicate the actual price they will consider seriously and you guessed it; it is the higher price in the range! Buyers do get angry when this is done, but with our guidance, we are normally able to work around this issue.

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